FAT Tax

May 10, 2011

What is the FAT tax?

The FAT tax, or financial activities tax, can refer to a number of similar proposals intended to curb excessive speculation and bank profit. One popular variation is a tax on individual financial transactions, such as stock trades, while others include direct taxes on bank profits and salaries.

What's the significance?

Proponents of a FAT tax argue that it would discourage banks and other high-volume traders from the kinds of short-term, high-risk speculation that can seriously distort financial markets. It would also support broader financial reform efforts by reining in the runaway profits that help make some institutions too big to fail. Finally, it would help cash-strapped governments close their budget gaps, as even taxing transactions at a quarter of a percentage point could generate over $100 billion a year in revenue.

Who's talking about it?

Paul Krugman argued that taxing speculation would reduce bloat in the financial sector... Jack Metzgar noted that FAT tax revenue could pay off the combined deficit of all 50 states... Dean Baker made the case for a tax to keep traders from treating the market like a casino... CEPR dispelled some myths about the transactions tax... Democrats considered a FAT tax to support new spending programs... the IMF proposed a global FAT tax to help prevent another round of bailouts.